Indonesia has been losing out on business farther up the supply chain. Its mines produced 271,000 metric tons of nickel alone in 2013, and one might think that would lead to a healthy trade in refining and smelting. But that has not been the case, because trade partner China has been buying up huge stores of nickel and other raw ores from Indonesia, and doing the processing itself.
Other mineral-rich countries, such as the Democratic Republic of Congo, face similar dilemmas. While they need the business, those ores are exported to be processed elsewhere, depriving the country of origin of the added jobs and revenues that ore processing would bring.
But Indonesia, which is the world’s largest exporter of nickel ore, refined tin and thermal coal, as well as a major producer of bauxite and the site of the fifth-largest copper mine and top-producing gold mine in the world, has decided to act. Earlier in January it instituted a ban on mineral exports aimed at bringing home more processing business.
Indonesia’s goal, of course, is to compel foreign purchasers of its ore to invest in smelting and refining facilities to process the ore before it leaves the country. Indonesia has few of its own such facilities in place. Investments in processing plants would increase the country’s income from its natural resources and at the same time develop additional industries, as well as provide additional jobs besides mining. However, in the short term, more than100 mines have shut down and thousands of miners have been laid off.
While the ban is not complete—U.S.-based Freeport-McMoRan and Newmont, the two largest mining companies operating in the country, have temporary exemptions—it has certainly made itself felt, with laid-off miners protesting in the streets in Jakarta and challenges in court from the Mineral Entrepreneurs Association.
In addition, the loss of sales from ore exports is huge, with nickel and bauxite alone accounting for more than $2 billion annually. The country’s finance minister has said that the ban could cut government revenues by up to $820 million for 2014. According to Indonesia’s central bank, ore and concentrate exports amounted to some $500 million in value per month from January of 2013 to October. That’s a big bite out of the country’s economy.